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Open Banking's impact on ethical lending

An in-depth exploration into how open banking is a catalyst for the evolution in the lending industry. Explore how Yapily’s open banking infrastructure is transforming affordability, customer resilience, and financial support.



The lending sector has undergone a transformative shift, transitioning from traditional transactional frameworks to a more nuanced, data-driven ecosystem. But as we’re amidst a cost-of-living crisis, this puts pressure on both the consumers and the credit providers.

The number of consumer credit providers has shrunk, yet the figures are showing that consumer credit new business was 13 per cent higher in 2022 than 2021

Times have proven to be challenging but open banking is offering smarter ways of solving some of these problems. Its evolution in recent years stands to mark a new age of financial empowerment and inclusion. Open banking aims to provide lending companies with clearer and more holistic financial views to stay compliant and provide the necessary support.

Understanding the lending industry’s pain points

The current financial industry is grappling with numerous challenges. Customers demand more personalised services, and regulations now mandate a higher degree of transparency and fairness.

The rise in people seeking lending support has been further exacerbated by COVID as there has been a 15 per cent increase in individuals with characteristics of vulnerability since pre-pandemic levels, totalling 27.7 million, as found by the FCA. A rise in the Buy Now Pay Later (BNPL) has also been met with demand for increased regulations so these companies are required to share data, but this is not expected until 2025.

A further pain point for the lending industry is people keeping up with their mortgage payments. The cost-of-living crisis, rising interest rates and unemployment have all swelled leading to families needing to cut or suspend mortgage payments. Buy-to-let mortgage companies are also grappling with tenants struggling to meet inflated rent demands.

The Bank of England revealed that in Q2 2023, mortgage balances with arrears leapt by 13 per cent, the highest level since 2016. In this same quarter, it was found that mortgages in arrears accounted for 0.93 per cent of all homeowner mortgages outstanding and 0.44 per cent of all buy-to-let mortgages outstanding. In Q3, 630 homeowner mortgaged properties and 450 buy-to-let mortgaged properties were taken into possession in the third quarter of 2023.

A focal point of contention is the lending sector, where two critical aspects emerge:


Can borrowers afford the loans they take out? Modern lending decisions should be holistic as there are now faster ways of obtaining the data needed to make these decisions. No longer are choices made based solely on surface-level credit scores. Instead, there's a meticulous process in place, evaluating a borrower's comprehensive financial position. 

Financial Resilience: 

Do customers have the financial buffer to withstand economic fluctuations without defaulting? It's about acknowledging the nuanced reality of personal finance and ensuring that lending facilitates, rather than complicates, a borrower's financial journey.

In addition, there's a pressing need for better monitoring systems to ensure consumer duty adherence and to prevent foreseeable harm.

Open banking as the game changer

Open banking leverages technology to securely and efficiently share financial information with third-party providers. This sharing is the cornerstone for driving innovation in the lending process.

In-depth analysis through Account Information Services (AIS)

AIS, an Open banking service, is revolutionising KYC (Know Your Customer) and affordability assessments.

AIS facilitates granular insights into customer spending patterns, offering a real-time pulse on financial health. This paradigm shift is already showcasing tangible results: loans approved through open banking techniques have significantly lower delinquency rates than traditional methods.

With Yapily Data, lending companies can access real-time insights into data to serve your customers with greater confidence.

Predicting and preventing delinquency

Open banking data is a powerful predictor as it pulls the necessary data quickly, and enables lenders to make insights and draw conclusions on financial health. Financial institutions can now pre-empt potential delinquencies and proactively assist customers, paving the way for a more resilient financial ecosystem.

A report by The Financial Brand indicated that delinquency rates on loans approved via traditional methods are significantly higher compared to those facilitated through open banking, underscoring the predictive power of open banking data.

Efficiency and proactivity in collections

Lending companies can use Pay by Link for greater proactivity, as it enables you to generate a ‘request to pay’ link that you can send to a customer to initiate payment collection.

This provides lenders with a secure and easy way to collect the fixed amount owed by the end user, either requested by email or SMS. Harnessing the power of Pay by Link with AIS ensures collections are not just about recovery but about understanding. It's about reaching out at the right moments, minimising financial stress for borrowers.

For instance, by analysing bank balance data, lenders can proactively remind customers to top up their accounts before the due date, which greatly reduces the failure rate of Direct Debits (DD). 

Minimising foreseeable harm

Variable Recurring Payments (VRP) and Pay by Link services mitigate the risk of missed payments, protecting customers' credit files. The significance of this protection cannot be overstated, as negative markers can remain on an account for up to six years. By facilitating the auto-sweeping of funds, it protects the creditworthiness of borrowers.

Give your customers the relief of streamlined recurring payments so their credit score isn’t impacted by late payments with VRP

Empathy in debt recovery

During financial hardship, open banking data can offer lenders a real-time view of a customer's financial position, reducing paperwork and streamlining the process of arranging flexible payments.

Coupled with VRP and Pay by Link, lenders can now offer flexible recovery plans, demonstrating empathy and understanding for a more compassionate approach to debt recovery. 

Final thoughts

Open banking has underpinned transformation in the lending sector. It promises a future where lenders and borrowers engage in transparent, empathetic, and informed interactions. This transcends traditional lending methods by enabling more nuanced, data-informed decisions.

Key advantages include enhanced affordability assessments and improved financial resilience. By leveraging Account Information Services (AIS), lenders can gain a deeper understanding of borrowers' financial situations, leading to more accurate and empathetic lending practices. This shift not only reduces delinquency rates but also fosters a more customer-centric financial ecosystem.

Furthermore, operational efficiencies like 'Pay by Link' and Variable Recurring Payments (VRP) streamline the collections process and minimise foreseeable harm as well as protect consumers' credit scores. Overall, open banking represents a significant leap forward in empowering lenders and borrowers alike, paving the way for a more equitable and efficient financial landscape.

Yapily’s open banking platform stands out for its robust API, ensuring secure and seamless data sharing that is crucial for the modern lending landscape. 

We offer real-time financial insights, facilitating lenders to make more informed and empathetic decisions. Our dedication to innovation, coupled with a deep commitment to compliance and user experience, positions Yapily not just as a provider but as a partner in reshaping the financial industry. 

Choosing Yapily means embracing a future where financial solutions are tailored, transparent, and truly transformative, adding unmatched value to both lenders and their customers. Discover Yapily Data and see how it can help your lending business today.

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Sophie Proctor

Sophie Proctor

Content and Communications Manager


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